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Sri Lanka’s rupee was little changed ahead of the release of December national inflation data.

(Bloomberg) — Sri Lanka’s rupee was little changed ahead of the release of December national inflation data.

* USD/LKR steady at 181.30

* National CPI data due at 3pm local time; no forecast, prices rose 4.1% y/y in November

* “There maybe a bit of pressure from food inflation with some supply side issues, “says Dimantha Mathew, head of research at First Capital Holdings in Colombo

** Sees the rupee supported by foreign buying into the short end of the nation’s bond yield curve

* Yield on nation’s 10.25% bond due June 2024 fell 2bps Monday to 9.55%

* Overseas investors sold a net $1.9m of local shares Monday, taking withdrawals for January to $6.2m: exchange data

Dimantha Mathew, Head of Research at First Capital commenting on the bond and stock market performance – 16.01.2020

First Capital is an investment bank offering services as Stock Brokers in Sri Lanka. The Company acts as a conduit between retail and institutional clients and the secondary market of the Colombo Stock Exchange. First Capital’s best-in-class research team provide a series of actionable trade recommendations, daily and periodic market commentaries and publications for Stock Brokers in Sri Lanka

First Capital Holdings PLC is an investment bank and is the pioneer non-bank affiliated Primary Dealer in Treasury Bills and Bonds in Sri Lanka. With a track record of over 25 years, the Company was the first licensed primary dealer appointed by the Central Bank, and is also the only listed and rated primary dealer in Treasury Bills and Bonds in Sri Lanka.
First Capital delivers the only source for fixed income research in the local financial services industry. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis.

Lessons from history; time to unload

By First Capital Research

Previous Fixed Income Report – Increase exposure in mid-long tenor bonds
In line with our expectations with the easing of political uncertainty post-Presidential Election, coupled with a favourable macro environment, bond yields eased off towards our targeted bottom bands of the yield curve. The favourites that we recommended, 2023 and 2024 maturities, saw a sharp dip in yields, creating heavy capital gains.

Recent hefty tax cuts may lead to fiscal slippage: The recently announced hefty stimulus package may cause fiscal slippage, in light of the estimated loss to the Government revenue. Reduction in tax revenue and uncertainty in all other indicators (foreign reserves, inflation and exchange rate) may significantly deteriorate macroeconomic conditions and increase volatility of interest rates. Accordingly, we lower our First Capital Economic Health Score for the bond market for the next couple of quarters.
Reduce exposure in Trading Portfolio: The Bond market yield curve is currently trading at the lower bands of the First Capital Research yield curve expectations. In our Bond Portfolio, our current investment is assumed to have 50% exposure with 35% into trading portfolio and 15% in carrying portfolio. With the present macroeconomic environment, we recommend completely exiting the trading portfolio, considering the volatile environment, while maintaining exposure in the carrying portfolio. We recommend avoiding accumulation in the secondary market to bid for the auctions.

Portfolio Recommendation:

Reduce overall portfolio to 15% from 50%, cut Trading Portfolio to 0% from 35%, and maintain Carrying Portfolio at 15%.

Sri Lanka plantations could cover wage hike with economic relief package: Minister

ECONOMYNEXT – Sri Lanka’s plantations firms will be given benefits in the form of free fertilizer, tax cuts and credit support, which would give space for them to give salary hike decreed by President Gotabaya Rajapaksa workers, co-cabinet spokesman Romesh Pathirana said.

“We are hopeful that they should be able to pay these wages because we have provided a economic relief package,” Minister Pathirana said.

“There is also a revival program for tea sector – the tea sector modernization program- that is why we said we need an efficient workforce for which we need to satisfy them.

“This is a long standing request from the estate sector worker the politicians and trade unions to increase the wages to 1000 rupees.

“And this was a promise given by Excellency the President Gotabaya Rajapaksa, so we have fulfilled that pledge.”

The cabinet of minister had approved the decree to raise the daily wage to 1000 rupees from the current 700 rupees from March 01.

When the salary was hiked last February from 500 rupees to 700 a day regional plantations companies said the cost would be around 350 million rupees a year, based on the workforce. Firms have between 7,000 to 8,000 workers and are committed to giving 20 days of work.

The government in 2019 said a 50 rupee a month supplement would be given for a year from tax payer money.

Minister Pathirana said the tea estates should be makings savings on fertilizer and tax cuts which could be channeled to the workers.

“We have spoken to them (plantations companies) and given the financial relief package also considering that we are providing fertilizer free they should be able to manage it,” he said.

“They should be able to manage it because we have given reduction in VAT, Economic Service Charge. So there is a moratorium in relation to loan, we are going to cut down interest, so considering all that they should be able to fall in line and provide relief to the estate workers.”

It is not clear whether any savings from fertilizer and taxes will fully cover the wage costs.

A senior official of the Planter’s Association which represents plantations companies said they were still working out the impact and were not able to comment on Wednesday, a religious holiday in Sri Lanka.

Though there expectations that tea prices will pick up in line with other global commodities which have already gone up, any sanctions on Iran may affect demand for tea.

“Many tea companies are already making losses,” Atchuthan Srirangan Assistant Manager Research at First Capital Holdings, an investment banks said.

“The profitability of plantations companies will be affected.”

Last year stock prices dropped after a the wage hike, which however was expected as it was a negotiated collective agreement. (Colombo/Jan15/2020)

Dimantha Mathew, Head of Research at First Capital commenting on the bond and stock market performance – 14.01.2020

First Capital is an investment bank offering services as Stock Brokers in Sri Lanka. The Company acts as a conduit between retail and institutional clients and the secondary market of the Colombo Stock Exchange. First Capital’s best-in-class research team provide a series of actionable trade recommendations, daily and periodic market commentaries and publications for Stock Brokers in Sri Lanka.

First Capital Holdings PLC is an investment bank and is the pioneer non-bank affiliated Primary Dealer in Treasury Bills and Bonds in Sri Lanka. With a track record of over 25 years, the Company was the first licensed primary dealer appointed by the Central Bank, and is also the only listed and rated primary dealer in Treasury Bills and Bonds in Sri Lanka.
First Capital delivers the only source for fixed income research in the local financial services industry. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis.

Atchuthan Srirangan, Assistant Manager – Research at First Capital commenting on the bond and stock market performance – 10.12.2019

Atchuthan Srirangan, Assistant Manager – Research at First Capital commenting on the bond and stock market performance.

“The secondary market yield curve remained broadly unchanged while overall market witnessed mixed activities with low volumes ahead of the bond auction. Bourse ended in negative territory for the fifth straight session on the price losses made in JKH and DIST.”

First Capital is an investment bank offering services as Stock Brokers in Sri Lanka. The Company acts as a conduit between retail and institutional clients and the secondary market of the Colombo Stock Exchange. First Capital’s best-in-class research team provide a series of actionable trade recommendations, daily and periodic market commentaries and publications for Stock Brokers in Sri Lanka.

First Capital Holdings PLC is an investment bank and is the pioneer non-bank affiliated Primary Dealer in Treasury Bills and Bonds in Sri Lanka. With a track record of over 25 years, the Company was the first licensed primary dealer appointed by the Central Bank, and is also the only listed and rated primary dealer in Treasury Bills and Bonds in Sri Lanka.
First Capital delivers the only source for fixed income research in the local financial services industry. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis.

Dimantha Mathew, Head of Research at First Capital commenting on the bond and stock market performance – 30.10.2019

Invest in Sri Lanka

“The secondary market yield curve remained broadly unchanged while overall market witnessed limited activities with low volumes. Bourse ended in red reversing the positive sentiment witnessed for the last nine trading sessions dragged down by big cap DIAL and JKH.”

Dimantha Mathew, Head of Research at First Capital commenting on the bond and stock market performance

First Capital is an investment bank offering services as Stock Brokers in Sri Lanka. The Company acts as a conduit between retail and institutional clients and the secondary market of the Colombo Stock Exchange. First Capital’s best-in-class research team provide a series of actionable trade recommendations, daily and periodic market commentaries and publications for Stock Brokers in Sri Lanka.

First Capital Holdings PLC is an investment bank and is the pioneer non-bank affiliated Primary Dealer in Treasury Bills and Bonds in Sri Lanka. With a track record of over 25 years, the Company was the first licensed primary dealer appointed by the Central Bank, and is also the only listed and rated primary dealer in Treasury Bills and Bonds in Sri Lanka.
First Capital delivers the only source for fixed income research in the local financial services industry. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis.

Atchuthan Srirangan, Assistant Manager – Research at First Capital commenting on the bond and stock market performance – 23.10.2019

Stock Brokers in Sri Lanka

“The secondary market yield curve remained broadly unchanged while overall market witnessed limited activities amidst thin volumes. Stock market closed the day on a mixed note, with ASPI remaining in the positive territory for the fifth straight session.”

Atchuthan Srirangan, Assistant Manager – Research at First Capital commenting on the bond and stock market performance  #CSE #CBSL #lka

First Capital is an investment bank offering services as Stock Brokers in Sri Lanka. The Company acts as a conduit between retail and institutional clients and the secondary market of the Colombo Stock Exchange. First Capital’s best-in-class research team provide a series of actionable trade recommendations, daily and periodic market commentaries and publications for Stock Brokers in Sri Lanka.

First Capital Holdings PLC is an investment bank and is the pioneer non-bank affiliated Primary Dealer in Treasury Bills and Bonds in Sri Lanka. With a track record of over 25 years, the Company was the first licensed primary dealer appointed by the Central Bank, and is also the only listed and rated primary dealer in Treasury Bills and Bonds in Sri Lanka.
First Capital delivers the only source for fixed income research in the local financial services industry. The Company’s best-in-class research team provide dynamic reports including economic reviews and proprietary research, encompassing fundamental, quantitative and technical analysis.

Low interest rates set to provide flywheel to mutual fund industry

Daily Mirror | 23.10.2019

Investment Bank in Sri Lanka

The mutual fund or the unit trust industry, which went on a rollercoaster ride due to the exodus of funds following new tax laws, is expected to make a comeback with fund managers eying a slice of the banking sector savings, offering attractive returns.
Several fund management companies have already ramped up their promotional campaigns to woo, specially the mom-and-pop investors or the small-sized retail investors, who have hitherto patronized banks to park their savings.
A unit trust fund by First Capital Holdings PLC is offering a return of 13 percent to its unit holders even when the market interest rates are on a downward trend, and is looking at luring the bank savers to its unit trust fund.
“For instance, currently some of the unit trusts that we are running are yielding 12.77 percent, which is net of taxes as well. Then you knock off your inflation of around 6.0 percent, you are still left with 6.5 percent as a real return,” said Kavin Karunamoorthy, a Wealth Manager at First Capital.
In comparison, one –year bank fixed deposit fetches not more than 10 percent at its highest in nominal terms, and one cannot earn more than five percent in real terms when accounted for inflation.
Besides that, Karunamoorthy pointed out that bank interest is also liable for 5 percent withholding tax.
Hence, the circumstances favour the unit trust industry as the banking sector interest rates are currently on a downtrend.
Sri Lanka’s unit trust industry, which had assets under management (AUM) of Rs.133 billion by 2015, fell to Rs.100 billion AUM by early 2017 and saw further erosion due to the removal of the withholding tax exemption on dividends received by corporate unit holders and other tax reforms affecting the industry.
At the time, corporate unit holders accounted for over 80 percent of the AUM, as they used to park their excess liquidity at returns which are exempted from withholding tax.

As Sri Lanka has almost reached the peak of its monetary easing cycle with back-to-back rate cuts, the traditional savers, who are at the mercy of bank interest rates, have received a raw deal with their real incomes either greatly waning or turning negative.
Meanwhile, the Central Bank has resorted to some unconventional macro-prudential measures such as deposit rate caps, which were rescinded with the imposition of lending rate ceilings from last week, to provide a tailwind for an otherwise slow monetary policy transition process, though its effectiveness is yet to be seen.
As monetary accommodation takes its toll on the traditional savers, the fund management industry has revved up their efforts to provide more lucrative investment opportunities to the traditional alternatives offered by the banks, which according to them, beats both the low nominal interest rates and inflation.
Taking an example of a typical pay cycle of a salaried employee, Karunamoorthy said a good 40 to 50 percent of his or her income is spent immediately on commitments such as loan servicing, while the balance is often left to be lying in a bank savings account at very low rates until such moneys are being spent on household staples and others.
“If one can carefully plan out one’s expenditure and the cash flows, unit trusts offer a better investment opportunity, where one can increase his returns while enjoying the same flexibility and the safety of a bank savings account as such moneys are kept with a trustee, which is often a bank, and the Securities and Exchange Commission (SEC) provides the regulatory oversight to the fund management industry.”
According to Karunamoorthy, what hinders the masses of taking the advantage of this is the lack of knowledge of these alternative investment opportunities, and he believes the continuous awareness programmes could address this knowledge gap.
Unit Trusts were introduced to Sri Lanka during 1991/92 with the main intention of broad basing the share ownership following the incorporation of the Colombo Stock Exchange (CSE) in 1985.
But the objective is far from being achieved as there are only 40,000 investors, representing just under 0.20 percent of the population.
First Capital Money Market Fund is a unit trust fund which at present offers returns of 12.77 percent and the funds that are collected from unit holders who are invested in fixed income securities such as Treasury bills, commercial papers and repurchase agreements taking positions on the future upside or downside on interest rates based on research, market insights and prowess in the fund management industry.